LA CONSOLACION COLLEGE OF

MANILA

Graduate School and

Continuing Studies
LA CONSOLACION COLLEGE OF MANILA
GRADUATE SCHOOL AND CONTINUING STUDIES

Masters of Business Administration (MBA)

Major in Hotel and Tourism Management

A Case Analysis
Of

Shelter Partnership, Inc.

In Partial Fulfillment
of the requirements for the
Course on Managerial Accounting

To be submitted to:

Dr. Antonio Yu
Submitted by:

Nova Amor Bobis

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Continuing Studies Date:

July 16, 2016

CASE STUDY : Shelter Partnership, Inc.

PROBLEM
Review Ruth Schwartzs joint cost allocation and cost accounting
methods that she must apply accordingly to support both the work of Shelter
Partnership Inc. and the fundraising efforts of Shelter Resource Bank.

OBJECTIVES
1. To review the issues in using the single stage cost accounting system both for
the benefit of Shelter Partnership Inc and Shelter Resource Bank

2.

To identify the issue of Ruths joint cost allocation of revenue against expenses
through the budgeted values in contrast with its actual expense as presented
on Exhibit 1.

3. To address her concerns about her cost analysis with the warehouse cost and
insurance cost.

AREAS OF CONSIDERATION
-HUMAN RESOURCES MGT
Identify the job description of each position with specifications under which
entity of organization.
-FINANCE MGT
Identify the revenue and expense of each entity Shelter Partnership Inc and
Shelter Resource Bank.
That the expenses listed in Exhibit 1 are shared across all operating units

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-OPERATIONS MGT/PRODUCTION MGT
Continuing Studies
activity

To ensure proper and enough estimates in operations. Allocate support cost by

ACAs (Alternative Courses of Action)

1. Separate the financial records of the 2 entities. Reassess the cost allocations to
each expense. Identify/estimate the cost of the warehouse and record under the
entity of Shelter Resource bank. To increase the insurance coverage of the
Shelter Partnership to include the donated goods kept at the warehouse.
2.

Continue using the single stage cost accounting system but identify the various
operating entities. . Reassess the cost allocations of salary. To insure the goods
kept at the warehouse at a separate premium.

EVALUATION OF ACAs
Criteria of Evaluation
RATING
4 - EXCELLENT
3 - SATISFACTORY
2 - FAIL
1 POOR
______________________
4+1 = 5/2 = 2.5 (PASSING RATE)

WEIGHT
ACCURACY
ACA 1
ACA 2
ALLOCATION
ACA 1
ACA 2

ACA 1

WTD
RATING

ACA 2

WTD
RATING

30%
4

1.2

1.2

0.6

0.8

40%

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20%
2
0.4
Continuing
Studies

RISK
EASE OF

10%

IMPLEMENTATION

TOTAL WTD

0.3

0.6

0.4

3.1

RATING

2.4

INTERPRETATION/RECOMMENDATION

Base on the Evaluation, ACA 1 is more suitable.

ACTION PLAN

PERSONS
ACTIVITIES

RESPONSIBL

RESOURCES/BUDGET

INCLUSIV
E DATES

Reassess and
description of

Human

Salary Cost according to

each position

Resources

the job description

INDICATOR)

limited and
1 week

according to the
indicated job

and under

description

which entity.

Proper

Formulate 2
Financial

(KEY PERFORMANCE

Functioning

identify job

separate

KPI

Existing Financial
Finance Mgt

Statements and

identification of
1 month

documents

Statements
Allocate support

Operations

costs by activity

Mgt.

Activity proposal

Revenues and
expenses of the 2

Per activity

entities
Success of each
activity

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Continuing Studies

Question 1: What purposes are served by Shelter Partnerships cost information?

Internal purposes: Analyses of operating efficiency, the cost accounting practices
of NPOs are similar to those of profit oriented organizations. Parts of the NPOs
operations could be very similar to profit-seeking organization. In this case, part of
Shelter Resource Bank (SRB) is similar to a logistics company. Essentially, both are in
the business of collection and distribution of goods. The conference organizing work
undertaken by Program Development is akin to the conference management activities
of an event management company. As such, the ways which the profit-seeking logistics
company and event management company use cost information and cost structure to
evaluate the efficiency of their operations could be similarly employed by NPO. For
example, the logistics company measure cost per km travelled to assess their cost
efficiency with relation to route planning and trucks utilization. SRB could use the same
to assess their transportation cost as well. To measure expense ratio of fund-raising
activities (as undertaken by Technical).The expense ratio of fund-raising activities
measure the percentage of donations solicited used to run the operations of Technical.
If the expense ratio is low, it implies that a high proportion of donations are being used
to directly contribute to the beneficiaries, instead of being used to run the fund-raising
activities itself. To set targets for fund raising NPOs need to raise adequate funds to
finance their operations. An understanding of the nature of NPOs cost, its structure and
drivers would help the NPO determine their fund requirements. Such requirements
could be translated into targets when organizing their fund raising activities and help
guide response by donors.
External purposes: Regulatory related Non-profit organizations are typically
subject to the governance and regulations by Government of the country in which these
NPOs operate in. The regulator(s) of NPOs may call for audit or review of the cost or
financials of NPO to ensure that donors contributions are not misused. As such, NPOs
would need to capture appropriate cost information to comply with regulatory

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requirements. Report to donor on usage of funds Donations that are solicited could
Continuing
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have conditions or restrictions
attached by the
donors with respect to their usage.
Accordingly, periodic reports on costs and fund usage are typically required by donors
to track and monitor the usage of their donations. Implications for fund-raising efforts
Ruth was concerned that an understatement of cost to operate Shelter Resource Bank
(SRB) might have a negative impact on her fundraising efforts. This is because most
charitable foundations like to donate to larger, more substantial projects. Therefore,
such cost information is used by donors as a yardstick to evaluate their decision to
provide funding assistance.

Question 2: What are the cost objects?

Cost object is the technical name for the product, project, organizational unit, or
other activity or purpose for which costs are measured. In this case, Shelter currently
has just two cost objects. One is SRB, while is other is a category called All Other
Activities (AOA). Based on the organizational structure of Shelter Partnership, there
are four organizational units namely Technical, Program Development, Public Policy
and SRB (vehicle for direct material assistance); In order to better understand the
resources devoted and operating efficiency of each organizational unit, Ruth could
consider further analyzing AOA into its 3 components. In this way, Ruth would be able to
better assess the units performance by looking at the achievement of the individual
units objectives relative to the cost and resources incurred to deliver the respective
achievements.
Decisions could then be made to expand/maintain good-performing units and/or
curtail under-performing activities in order to better achieve Shelters objectives as a
whole. Having said that, the amount of cost to be allocated to its 3 components should
be material enough for decision-making purposes in order justify the additional work
required to enable such detailed allocation.
Question 3: Are Ruths estimates accurate enough?
Salaries are the major component of Shelters total cost (>64%) and thus would
be a key focus area to assess its cost allocation accuracy. Salaries The estimates made
are Ruth relating to salaries cost are; Allocation of indirect expenses of SRB by
estimating the proportion of resource that SRB is using; 100%: Warehouse Manager,
Donations Distribution Manager, Donations solicitation Manager 50%: Associate
Director, Development Director, Office Manager, Receptionist 0%: Executive Director,
Program Manager It is reasonably accurate to allocate 100% of the warehouse
managers salary to SRB, as he worked fully at the warehouse. The method of
allocation of Benefits & PTE based on % of salaries is fairly accurate, provided that cost

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of salaries is fairly allocated. Given the lack of information on the job description of the
Continuing
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various positions, we cannot
assess with certainty
the accuracy of salaries cost
allocation. What are they doing within Shelter Partnership, are they working partially or
fully with SRB? If yes, for which proportion of time? If not, what is the rational to allocate
indirect cost at percentage of 50%? In particular; Salaries of development director, to
determine the resources used more accurately, the share of salaries cost should be
stated before deduction of the grant. The grant could be presented separately to show
the net effect of the grant. It is not clear how the development director participates in
SRB. If the development director is to manage the Program Development unit, it may
not justify allocating his/her cost to SRB Salaries of Donations Solicitation Manager
Should the Donations Solicitation Manager participate in the Technical unit to draw
donations from foundations, private fundraiser etc, part of his/her salaries should also
be allocated to Technical instead of 100% to SRB. (Account flow should be in line with
work flow) Salaries of Executive Director and Program manager by allocating 0% of ED
and PM salaries to SRB, it implies that they are not involved in the work of SRB. From
the case it seems that Ruth, as Executive Director, also spent a portion of her time to
manage SRB. This 0% allocation appears unusual and may cause Ruths estimates to
be off the mark, especially that EDs salaries may be a significant component of total
salaries cost. Also with these allocations, it should be clear on which of the two entities
they are under.
Question 4: Address the issues described in The Concern section
Cost of warehouse space Ruth is aware that she was not accounting for the cost
of the warehouse used by SRB. This effectively understates SRB and Shelters cost and
would negatively affect her fundraising effort. Although there is no physical cash
expenditure as the warehouse space is given for free (donated by General Services
Administration), an economic cost is consumed and thus should be accounted. (SRB
could debit warehouse rental and credit donation income at the market rate) On the
appropriate market rate to be used, it is not clear when the advice (that it would cost
$110k per year if Ruth has to pay for it) by GSA was given and on what basis the advice
was provided. As such, given that in the market today she could not find anything
comparable for less than $1.35 psfpm, she could employ $ 486k (1.35 x 30k x 12
months) as the relevant market rate. Cost of Insurance for SRB Given that Shelters
total insurance premium was driven by SRB, 100% or majority of the organisations
insurance should be allocated to SRB. However, SRB was allocated 50% of insurance.
This is not an accurate picture and the allocation should be adjusted to reflect its usage.
While it could be true that donors look at size of expenditure to assess their donations
contribution, it is very important for NPO to demonstrate their contribution to the cause
of their organization. A donor will be interested to know how well the NPO is spending
its donations and not just how much the NPO is spending. The NPO could be abusing
its donations, inflating its expenditure relative to contribution to its cause, and this is by
no means reason for donor to continue its support. Shelter, in funds raising efforts,

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should communicate some of these performance indicators such as number of
Studies
homeless helped, valueContinuing
of goods flowed through
by SRB to its beneficiaries etc to
demonstrate its contribution and value creation. Along with ratios of such performance
related to cost, donors can see improvements in efficiency, productivity and resource
utilization.